Thursday, August 28, 2008

Raghuram Rajan Committee

The Raghuram Rajan committee on financial sector reforms, constituted by the Planning Commission, submitted its draft report sometime ago. I have a critique of the banking sector reforms proposals contained in the report in EPW (Aug 9-15, 2008).

A few things I would like to highlight:
  • The report does not recommend privatisation on all public sector banks. It is rather more cautious than, say, the Percy Mistry report. It urges experimenting with sale of a few under-performing PSBs to foreign banks.
  • On opening up to foreign banks, the committee does not favour a level playing field with domestic banks right away. It wants abolition of branch licenses for domestic banks, followed by extension of the same to foreign banks with a lag of a couple of years or so.
  • It prefers reform of PSBs through overhaul of governance. But some of its proposals, such as the government not appointing top management and leaving this to an independent board, are unlikely to fly. With good reason. 'Leave it to an independent board' sounds very lofty but it risks creating a dangerous governance vacuum where we can least afford it- the banking sector. And now is the not the time to be singing the praise of independent boards in the financial sector-see what has happened to some of the best known names worldwide in the sub-prime crisis.

3 comments:

Anonymous said...

Sir
I am not an expert on banking but one thing i understand as a layman is that private and multinational banks only loot common man. i have a home loan from psu bank at 10.75% while private sector bank gives me same loan for 14%. I do not know for what reason but in times of slowdown, this saving is a huge respite, else i would be forced to sell my house and stay either in rented acco or on streets. so much for great service of pvt sector bank. these days the employees of pvt sector banks are more rude than public sector banks. so much for a take of a layman on reforms!! Who needs reforms, public sector or private sector banks?

KrRahul said...

Very informative...

"It urges experimenting with sale of a few under-performing PSBs to foreign banks." Why only to foreign banks?

SANJEEV said...

SANJEEV OBEROI said

SOME CHANGES ARE INEVITABLE SO WHY GRUDGE AGAINST THEM. MERGERS AND ACQUISITIONS ARE WORLD WIDE PHENOMENON, INDIA IS NOT ISOLATED IN THIS GLOBALISED WORLD.